Wallace R. Noel and Robinette Noel - Page 13

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          shaw Glass Co., 348 U.S. 426 (1955).  Exclusions from gross                 
          income have been narrowly construed.  United States v. Centennial           
          Sav. Bank, 499 U.S. 573 (1991).                                             
               Section 104(a)(2) provides an exclusion from income for "the           
          amount of any damages received * * * on account of personal                 
          injuries or sickness".  The term "damages" in section 104(a)(2)             
          encompasses amounts received pursuant to settlement agreements.             
          Sec. 1.104-1(c), Income Tax Regs.  To be excludable, the under-             
          lying claim must be based on tort type rights, and the damages              
          must be received on account of personal injuries.  O'Gilvie v.              
          United States, 519 U.S. __, 117 S. Ct. 459 (1996); Commissioner             
          v. Schleier, 515 U.S. __, 115 S. Ct. 2159, 2167 (1995).                     
               The tax consequences of a settlement agreement depend on the           
          nature of the litigation and on the origin of the claim but not             
          on the validity of those claims.  Woodward v. Commissioner, 397             
          U.S. 572 (1970).  Where a settlement agreement lacks specific               
          language, the intent of the payor is the most important factor in           
          determining the nature of the claim being settled.  Knuckles v.             
          Commissioner, 349 F.2d 610 (10th Cir. 1965), affg. T.C. Memo.               
               In his 1990 Federal income tax return, petitioner allocated            
          some of the proceeds received from PepsiCo to nontaxable amounts            
          received in settlement of a lawsuit under section 104(a)(2).                
          Petitioner, in connection with the transfer of PMI stock to                 
          PepsiCo, signed a release which discharged his claims against               

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